Off-Road M&A: Rules of the road

The M&A landscape today is much different than it once was. Today’s roadscape is congested, and drivers are struggling to understand what lies ahead.


30 September 2013

M&A truck

The M&A landscape today is much different than it once was. Today’s roadscape is congested, and drivers are struggling to understand what lies ahead.

In my last blog post, I introduced new techniques for getting deals done in difficult markets. Now that you know the roadscape we’re driving in, it’s time to rev up those engines, get stuck in the mud and abandon those redundant processes of before.

In case you find yourself tailgating, here are two road rules I follow.

Rule #1: Forget about round one

Forget round one - it’s not happening. You need to work out who is serious about buying without the luxury of a first round bidding exercise. In the old M&A landscape, you used to be able to just look at your dash and see the top 10 valuations. You had a little chat and hey presto, you had your six bidders lined up for the next round all booking management presentations.

As you go off-road, you need to question people much harder to determine the best route. The old puzzle comes to mind about asking directions from the guy at the fork in the road who always lies. Yes, you need to find a way of deciding who is really serious. That used to be a purely quantitative task, but now it’s qualitative. Bankers do not like that. It is fuzzy. It is subjective.

You need to enjoy this off-road experience. Stop under a tree and contemplate the enormity of the universe and how miniscule your concerns are when measured against such galactic proportions. And now, in your newly humbled position I want you to close your eyes and dream of a world in which you can tell which buyers are really serious.

In fact, you do not have to dream any more. With a deal sourcing platform , you can find qualified buyers according to a whole series of metrics wrapped up in some algorithm thingamabob. The best part of it all is that the buyer has to declare their hand before they know what is for sale. So it reverses the logic from “I have this property, would you be interested?” to “What are you seriously looking to buy?” That serious buyer interest times several thousand all over [153] countries is sitting there with the certainty of the Polar Star, waiting for you to make your navigational calculations. All part of the new way of getting from A to B. I digress.

Rule #2: Forget about going exclusive

Going exclusive is for smooth, tarmac guys. All that is left of them is the bleached bones lying on the side of the freeway. They did not make it. Their genes are not part of the modern approach to M&A. Evolution is so unforgiving.

No, you need to keep more people in the ring until the bitter end. Bidders can be like moons or shooting stars. The moons endlessly orbit tugging at the oceans of due diligence, but never making a move. Although the comets are spectacular. They arrive in a shower of sparks but then disappear just as fast, usually calling again two years later. Sometimes they threaten (market) extinction by coming too close for comfort. What you want is the buyer who does some circling and then makes a soft landing, a bit like NASA’s shuttle. Yes you are looking for that buyer.

The way to avoid having to make your final bet on the one buyer is to say to the others (usually two, maybe three), something like, “To all the final bidders, I will pay your costs or contribute a fixed amount to your costs if you are not the eventual winning bidder.” This keeps them in the ring. The pressure is maintained. If one bidder goes all comet on you, you can just convert a moon into a shuttle. It may cost your client a few 100,000s, but if you get it right it should ensure they make 10X that amount in marginal consideration or the certainty of a close.

In parting, my plea is this: where there was automatic process, bring original thought. Where there was the stultifying numbness of the jam, let there be the challenge of uncertain mud. Where there were abandoned deals, let there be a winch and rope. Guiding you through all of this will be the advances of technology, complete with a whole new navigational toolkit.